Bob Kiley, the capital's transport commissioner, has quit after a power struggle with Ken Livingstone over the stewardship of the body responsible for the London's roads, buses and tubes.

The American, instrumental in the mayor's congestion charge scheme and bus network expansion, stood down after a clash over a member of staff that he wanted removed but whom the mayor wanted to keep. "It got to the stage of either he goes or I go," a source close to the mayor told the Guardian. "The mayor's answer was not what Kiley expected."

His departure will trigger a battle of succession at Transport for London just as it seeks to persuade ministers of the CrossRail project, and to press for a second congestion charge zone in west London. Mr Kiley's reputation and standing was said to have greatly enhanced TfL's status in Whitehall and in the financial markets. Mr Kiley, 70, will leave in January with a package worth more than £1m . He will continue as the "principal transport adviser" to the mayor until 2008, the end of the Mr Livingstone's current term. His contract was due to run until 2009/10.

The former CIA agent will also be allowed to remain in the Belgravia townhouse bought for £2.1m by TfL on his appointment four years ago. One source last night told the Guardian that the fees will spark a row when made public. "The figures are big. You could say obscene," he said.

Efforts were being made last night to portray the parting as harmonious. Sources close to the mayor stressed the need for a commissioner who could serve through to 2012 for the London Olympics take place.

But the relationship between the mayor and his transport commissioner was always prickly. He was credited with having transformed the New York subway and here, he has been at the heart of the mayor's principal achievements, including the introduction of the congestion charge and the expansion of London's bus network.

He also led Mr Livingstone's assault on the PPP, in the media and through the courts.

Tony Travers of the London School of Economics said: "Bob Kiley was the closest thing we have had to the kind of strong deputy mayors they have in New York, but he needs a figure like Bob Kiley much less now than he did in 2001."

The move will spark a tussle for one of the most powerful jobs in the capital, the right to run London's transport network. Mr Livingstone last night indicated that a successor would be drawn from the ranks immediately below Mr Kiley. The three men in line are Jay Walder, TfL's chief financial officer and one of the team of Americans originally recruited by Mr Kiley, Peter Hendy, the bus privatisation millionaire who runs "surface transport", including historically the expanded bus network, and Tim O'Toole, the US boss of London Underground, who won plaudits for the network's reaction after the terrorist attacks in July.

Seeking to head off the inevitable scrutiny and political controversy, Mr Livingstone also claimed Londoners will gain from the arrangements he has put in place because the value of the Belgravia house occupied by Mr Kiley will have risen by 2008 to the point that TfL will recoup the cost of having employed Mr Kiley during his time in charge of TfL.

He enjoyed a basic £312,027 salary, a £275,000 bonus and other benefits of £111,644 - including the use of the townhouse.

Mr Kiley, whose bonus is paid a calendar year in arrears, is set to receive up to £365,000 in performance-linked bonuses at the end of the year.

Mr Livingstone said: "During his five years as commissioner of transport, Bob has made an absolutely outstanding contribution in starting to rebuild London's transport system and assembling one of the strongest transport management teams in the world. The positive impact of his transport legacy will be felt by Londoners for many years to come."

But the political fallout was immediate. Roger Evans, the Tory transport spokesman on the London Assembly said "Bob Kiley must think all his Christmases have come at once. What the hell is the mayor playing at?"

Geoff Pope, the Liberal Democrat transport spokesman in London added: "Londoners will not be happy if Mr Kiley receives a large pay-off which would be better spent on improving transport."